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Fiduciaries: When is Self-Denial Obligatory?

Published online by Cambridge University Press:  01 November 1999

Sarah Worthington*
Affiliation:
London School of Economics and Political Science
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Extract

A highly paid agent sets out to undermine his principal’s business. A doctor wangles sex-for-drugs favours from a patient. An advisor offers self-interested advice to his client. A father engages in an incestuous relationship with his child. In each case the perpetrator is clearly a wrongdoer and the law must somehow respond. But what is the legal wrong and how should the law respond?

Type
Shorter Article
Copyright
Copyright © The Cambridge Law Journal and Contributors, 1999

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References

1 As various judges have: see USSC v. Hospital Products International Ltd. [1982] 2 N.S.W.R. 766, rev’d (1984) 156 C.L.R. 41; Norberg v. Wynrib (1992) 92 D.L.R. (4th) 449; Hodgkinson v. Simms (1994) 117 D.L.R. (4th) 161; M (K) v. M (H) (1992) 96 D.L.R. (4th) 289.

2 Much has been written on fiduciaries. See especially A. Scott (1949) 37 Cal. L.R. 539; L.S. Sealy [1962] C.L.J. 69; J.C. Shephered (1981) 97 L.Q.R. 51; T. Frankel (1983) 71 Cal. L.R. 795; Finn, P.D., ‘The Fiduciary Principle” in Youdan, T. G. (ed.), Equity, Fiduciaries and Trusts (Toronto 1989)Google Scholar, ch. 1; R. Flannigan (1989) 9 O.J.L.S. 285; Hon. J. R. M. Gautreau (1989) 68 Can. Bar Rev. 1.

3 E.g. Re Goldcorp Exchange Ltd. [1995] 1 A.C. 74, Re Stapylton Fletcher Ltd. (in admin. rec.) [1994] 1 W.L.R. 1181, and Daly v. Sydney Stock Exchange (1986) 160 C.L.R. 371, all cases where the proprietary claim failed.

4 E.g. Nocton v. Lord Ashburton [1914] A.C. 932.

5 E.g. Hodgkinson v. Simms (1994) 117 D.L.R. (4th) 161.

6 E.g. Aquaculture Corp. v. New Zealand Green Mussel Co. Ltd. [1990] 3 N.Z.L.R. 299, 301; Butler v. Countrywide Finance Ltd. [1993] 3 N.Z.L.R. 623, 631 per Hammond J. For criticism, see the references cited in Geltzer, J., “Patterns of Fusion” in Birks, P. (ed.), The Classification of Obligations (Oxford 1997)Google Scholar (“Classification”) ch. 7, at p. 160 n. 14. But also see E.J. Weinrib, “The Juridical Classification of Obligations” ibid., at ch. 2, pp. 48–51, advocating a different and more limited version of the “remedial menu”, justified simply on the basis of corrective justice.

7 J.D. McCamus (1997) 28 Can. Bus. L.J. 107, 115.

8 See J. Stapleton, “A New ‘Seascape’ for Obligations: Reclassification on the Basis of Measure of Damages’ in Classification (n. 6 above), ch. 8.

9 See the cases cited in the footnotes immediately following, and also Clark Boyce v. Mouat [1994] 1 A.C. 428, 437 per Lord Jauncey; NZ Netherland Soc. v. Kuys [1973] 1 W.L.R. 1126, 1130 per Lord Wilberforce; Permanent BS v. Wheeler (1994) 14 A.C.S.R. 109, 157 per Ipp J.; Breen v. Williams (1996) 70 A.L.J.R. 772, 807.

10 See Henderson v. Merrett Syndicates Ltd. [1994] 3 W.L.R. 761, 799 per Lord Browne-Wilkinson; White v. Jones [1995] 2 W.L.R. 187, 209–210 per Lord Browne-Wilkinson; Bristol & West BS v. Mothew [1996] 4 All E.R. 698, 710, 712 per Millett L.J. (although referring to an equitable duty of care); Girardet v. Crease & Co. (1987) 11 B.C.L.R. (2d) 361, 362 per Southin J.; LAC Minerals Ltd. v. International Corona Resources Ltd. [1989] 2 S.C.R. 574, 61 D.L.R. (4th) 14, 647 per La Forest J. and 597–598 per Sopinka J.

11 Paragon Finance plc v. Thakerar & Co. (a firm) [1999] 1 All E.R. 40 (CA).

12 Re Goldcorp Exchange Ltd. [1994] 2 All E.R. 806, 821 per Lord Mustill.

13 The cases do not seem to have gone so far yet, but see Bishopsgate Investment Management Ltd. v. Maxwell (No. 2) [1994] 1 All E.R. 261; Target Holdings Ltd. v. Redferns [1997] 1 A.C. 421, 432–439 per Lord Browne-Wilkinson (although counsel conceded a breach of fiduciary duty). Also see Hayton, D., “Fiduciaries in Context: An Overview” in Birks, P. (ed.), Privacy and Loyalty (Oxford 1997)Google Scholar (“Privacy”), ch. 11, at pp. 286–290; J. Heydon (1994) 110 L.Q.R. 334.

14 This is how the term is used in Finn, P.D., Fiduciary Obligations (Sydney 1977), see p. 2Google Scholar.

15 See Bristol & West BS v. Mothew [1996] 4 All E.R. 698, 710, 712 per Millett L.J; Breen v. Williams (1996) 70 A.L.J.R. 772, 793–799 per Gaudron and McHugh JJ., 782 per Dawson and Toohey JJ., 808 per Gummow J.; Warman v. Dwyer (1994) 182 C.L.R. 544. Also see D. Hayton, (n. 13 above); Austin, R. P., “Moulding the Content of Fiduciary Duties” in Oakley, A. J. (ed.), Trends in Contemporary Trust Law (Oxford 1996) ch. 7, pp. 156159Google Scholar; P. D. Finn, (n. 2 above).

16 Indata Equipment Supplies Ltd. (trading as Autofleet) v. ACL Ltd. Times, 14 August 1997.

17 Breen v. Williams (1996) 70 A.L.J.R. 772, 793–799 per Gaudron and McHugh JJ.; Sidaway v. Governors of Bethlem Royal Hospital [1985] A.C. 871, 884 per Lord Scarman, and [1984] 1 All E.R. 1019, 1032 per Browne-Wilkinson L.J.

18 See Hodgkinson v. Simms [1994] 3 S.C.R. 377, 411–412 per La Forest J., pp. 464, 466 per Sopinka and McLachlin JJ. (diss.). In this context, a further comment on categorisation is warranted. The doctrine of undue influence (albeit an equitable doctrine discussed at length in texts on equity) is completely independent of and distinct from the various equitable obligations, including fiduciary obligations, being considered here. Undue influence concerns the sufficiency of consent; it enables a transaction (whether by gift or contract) to be set aside: in short, it is a doctrine relevant to the law of unjust enrichment. See D. Hayton, (n. 13 above), at p. 286 But see CIBC Mortgages plc v. Pitt [1993] 4 All E.R. 433, 439–440 per Lord Browne-Wilkinson, querying the difference, if any, between fiduciary obligation and presumed undue influence. Also see P. D. Finn, (n. 14 above), at ch. 16, and L. S. Sealy [1962] C.L.J. 69, 79, where undue influence is discussed in the context of fiduciary obligations.

19 P.D. Finn, (n. 2 above), at p. 28.

20 See J. Geltzer, (n. 6 above), at pp. 166–167 and the references cited.

21 P.D. Finn, (n. 2 above), at p. 54. “Imposing” these obligations remains controversial: see L. Smith (1995) 74 Can. Bar Rev. 714, 717: a person “cannot become a fiduciary unless he or she wills it”; also see Hoyano, L., “The Flight to the Fiduciary Haven” in Privacy (n. 13 above), ch. 8 at pp. 182183Google Scholar, asserting that fiduciary relationships outside the traditional categories require an express or implied undertaking to act solely in the interests of another, an undertaking which parallels the assumption of responsibility doctrine in tort.

22 The most popular theories are examined in J. C. Shepherd (1981) 97 L.Q.R. 51.

23 (1984) 156 C.L.R. 41.

24 Ibid., at pp. 96–97. Also see Lord Browne-Wilkinson in White v. Jones [1995] 2 A.C. 206, 271: “The paradigm of the circumstances in which equity will find a fiduciary relationship is where one party, A, has assumed to act in relation to the property or affairs of another, B”.

25 This idea is especially relied on in Canadian cases: see, e.g., LAC Minerals v. International Corona Resources (1989) 61 D.L.R. (4th) 14, 63 per Sopinka J.; Guerin v. R. (1984) 13 D.L.R. (4th) 321; Frame v. Smith (1987) 42 D.L.R. (4th) 81, 98–99 per Wilson J., dissenting. This focus on vulnerability has been criticised as evidencing a departure from the core fiduciary notion of the defendant's selflessness: see L.S. Sealy (1995) 9 J.C.L. 37, 40.

26 See E. Weinrib (1975) U. Toronto L.J. 1, 7; Guerin v. R. (1984) 13 D.L.R. (4th) 321, 341 per Dickson J.

27 For example, the characteristics are equally apt to describe the relationship between home-owner and house-painter, diner and chef, driver and other road-users, all relationships accepted as adequately protected by contract and tort law. Also see Re Goldcorp Exchange Ltd. [1995] 1 A.C. 74, 98 per Lord Mustill.

28 J. Hackney, “More than a trace of the old philosophy” in Classification (n. 6 above), ch. 6 at p. 126.

29 P. Finn, (n. 2 above), at p. 27. Also see Welles v. Middleton (1784) 1 Cox 112, 124–125, where fiduciary status was justified as necessary “for the preservation of mankind.”

30 Glover, J., Commercial Equity—Fiduciary Relationships (Sydney 1995), at pp. 1718Google Scholar.

31 G.K. Hadfield (1997) 28 Can. Bus. L.J. 141.

32 As in Boardman v. Phipps [1967] 2 A.C. 46.

33 Courts already concede that the finding of a fiduciary relationship between the parties must create “obligations of a different character from those deriving from the contract itself” (Re Goldcorp Exchange Ltd. [1995] 1 A.C. 74, 98). Also see L.S. Sealy (1995) 8 J.C.L. 142 and (1995) 9 J.C.L. 37, nn. 56, 57.

34 This appears to be accepted by English and Australian courts: see L. Hoyano, (n 21 above), at p. 173 and the references cited; D. Hayton, (n. 13 above), at pp. 291–292. But for the contrary approach, see, e.g., Norberg v. Wynrib [1992] 2 S.C.R. 226, 92 D.L.R. (4th) 229, 268–269 and 275 per McLachlin J.; Frame v. Smith [1987] 2 S.C.R. 99, 143, 42 D.L.R. (4th) 81 per Wilson J.; M (K) v. M (H) (1992) 96 D.L.R. (4th) 289.

35 See J. D. McCamus (1997) 28 Can. Bus. L.J. 107, 112–113, 129–130.

36 See S. Worthington, “Reconsidering Disgorgement for Wrongs” (1999) 62 M.L.R. 218; and “Remedying and Ratifying Directors’ Breaches” (2000) 116 L.Q.R. (forthcoming).

37 See J. Stapleton, (n. 8 above).

38 See L. Wedderburn (1985) 23 Osgoode Hall L.J. 203, 221.

39 See, e.g., T. Frankel, (n. 2 above), at p. 798, asserting that “society is evolving into one based predominantly on fiduciary relations.”

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